7/5/2009 - The Current Market Sentiment

The single currency has dipped after Trichet's announcement that the ECB will buy European covered bonds reaching to 60b euros to afford money to push the current struggling economy before trying back again for testing 1.344 where it failed several times this week after these untraditional taken measures which were not fully discounted in the market but the improved risk appetite which is still controlling the currencies market can weigh on the greenback versus the single currency from another side as the current optimistic market sentiment. The details of this plan will be announced next ECB meeting as Trichet has said adding that The ECB will extend the banking funding period to 12 months too. The tone of his speech was looking dovish more than what was expected concerning both the inflation and the growth which is reasonable for these new taken actions of the ECB.
The ECB has referred in its former meeting that there can be inflation pressure resulted from adopting this policy but the recent inflation rates in Euro zone have looked supported to these actions. In the former meeting too, Trichet has downplayed the deflation risks in the Euro zone over the medium term and he kept this prospect saying that it is expected to be above zero and in that same meeting, Trichet has referred for the first time to the policy in its meeting which has been read as a smoothing to the market as they always do to avoid market shocks and this seems right.
The British pound has been hit today by the BOE decision surprising decision to inject another 50b pound buying bonds. The cable dived below 1.51 after the decision and the gold has got a push to jump above 920$ on the inflation pressure that can be resulted from these supplied funds. The decision to keep the interest rate at .5% was widely expected but the dovish tone of the Bank assessment and its new quantitive easing step can put further pressure on the British pound.
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